Development

Given confusion around the phrase “science of delivery,” it’s important to state that delivery science is not a “one-size-fits-all” prescription based on the premise that what works somewhere can work anywhere. And it does not profess that research and evidence ensure a certain outcome.

The consensus in Seoul was that a science of delivery underscores the importance of a data-driven and rigorous process to understand what works, under what conditions, why, and how. Too often in international development, we jump to conclusions without understanding counterfactuals and assume we can replicate success without understanding its constituent elements.

'Why is China Ahead of India? Implications for Europe and the US,' was the topic of a talk yesterday at the World Bank by Nobel winner Amartya Sen which was chaired by Kaushik Basu. In the span of just under two hours, Sen managed to pinpoint India's main Achilles Heel (primarily related to the low overall quality of education, poor health care and skewed energy and other subsidies), while weaving in references to Kido Takayoshi, Mao Zedong, David Hume, Mahatma Gandhi, Adam Smith, Jon Stuart Mill, Milton Friedman, Keynes, Marx and other thinkers and influencers.

Amartya's talk coincided with the publication of a New York Times op ed titled 'Why India Trails China' in which he stressed that one cannot wait to fix health and education only after reaching some modicum of overall prosperity. Indeed, proper health and education, which foster human capabilities, are an essential precondition to sustainable growth and the ability to compete successfully in an integrated world. India still needs to take these East Asian lessons fully on board.

It sounds impossible. Unthinkable. A world free from extreme poverty. A world in which no child is born to die, no child goes to bed hungry, every child lives a life free from violence and abuse and has quality health care, nutrition and learns in school. This has long been Save the Children’s vision but could now be a shared global vision, and by 2030 perhaps, a reality.

On May 30, 2013, a special panel of world leaders handed in their recommendations to the United Nations (UN) Secretary General on the future of global sustainable development and they, too, believe this can be our reality.

My previous blog ended with a question about the usefulness of anticipating the long-term future if that future is highly uncertain. Ever since the 1982 article on “Trends and random walks in macroeconomic time series” by Nelson and Plosser, there has been a debate about the long-term statistical properties of GDP and other macroeconomic variables. Nelson and Plosser could not reject the hypothesis of a random walk (with drift), which means that random shocks have a permanent impact on the level of GDP and that the uncertainty interval around forecasts becomes wider and wider with every year you try to peek farther into the future. The message seems to be: If next year’s world is already very uncertain, don’t even bother forecasting the world in 2030.

Others found that “macroeconomic time series are best construed as stationary fluctuations around a deterministic trend function”, if you allow for a few structural breaks in the trend. The consequences for long-term forecasting are huge because, in this case, random shocks are transitory, there is mean reversion, and it is in fact easier to analyze long-term trends than short-term fluctuations.

Ninety years ago, in his A Tract on Monetary Reform Keynes famously wrote “In the long run we are all dead”. That observation recently stirred a lot of debate for all the wrong reasons, after Niall Ferguson obnoxiously claimed that Keynes did not care about the future because he was childless. Whether Keynes cared about the long-term future or not (and whether he had children or not) is completely irrelevant in this context, as many (e.g. Brad DeLong and Paul Krugman) have pointed out.

The actual context in which Keynes wrote this observation was a discussion about the quantity theory of money, which states that doubling the supply of money will only double the prices, but will have no consequences for other parts of the economy. This is the classical dichotomy between real and nominal variables. Keynes argued: “Now in the long run this is probably true”. But “In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.” So, Keynes’ point was obviously not that the future doesn’t matter. His point was that simple theories that might describe long-term relationships are just not good enough to deal with current issues. In the short run, changes in money supply can have all kinds of important consequences beyond the price levels. Economists will have to make their hands dirty and delve into the complicated dynamics of the here and now.

It is widely agreed that eliminating extreme poverty in the world should take priority in thinking about our development goals going forward. The '$1 a day' poverty line is a simple metric for monitoring progress toward that goal. It was chosen in 1990 as a typical line for low-income countries (as explained in Dollar a day revisited). By this measure, poverty in the world as a whole is judged by a common standard anchored to the national lines found in the poorest countries. On updated data, the current value of this international line is $1.25 a day at 2005 purchasing-power parity. Today about 1.2 billion people in the world live in households with consumption per person below this frugal line. Thankfully, the world has made progress in bringing this count down; 1.9 billion people lived below $1.25 a day in 1990.

Notice that I say 'consumption' not income. A standard measure of household consumption is preferable as a measure of current economic welfare than income, and is typically measured more accurately than income. Fortunately, two-thirds of developing countries now have consumption-based poverty measures, although some regions, such as Latin America, are lagging in this respect.

At his Sabanci lecture yesterday on ‘Emerging Nations and the Evolving Global Economy’, Kaushik Basu predicted that sluggish growth will likely prevail overall for the next two years, as the baton of economic growth is handed over from industrialized countries to developing countries. He cautioned that countries have bought time with liquidity injections and other stimulus measures, but that will not do anything to fix deeper structural problems.

To hear his talk, along with his views on the recent austerity debate that reached a fever pitch over the past 10 days, listen to the audio of the full lecture and question and answer session here.

Kaushik elaborated on some of his ideas for getting the world out of the current ‘time-buying’ phase in an April 23 piece in Project Syndicate op ed ‘Two Policy Prescriptions for the World Economy.’ Dani Rodrik was especially taken with Kaushik’s opening line that “One thing that experts know, and that non-experts do not, is that they know less than non-experts think they do.” This pointed to the hard truth that the austerity debate has revealed that policy setting in today’s world is a highly uncertain business and that humility should be the order of the day.

“Last week, ahead of her trip to Washington, D.C., to speak to the World Bank about Africa’s private sector, the 35-year-old Policy Manager for Google Africa took to her Twitter account and asked her followers, “What should I tell them?”The responses came in fast and varied from rants about corruption in multinational corporations to comments about infrastructure and energy. For the most part, Okolloh didn’t engage the responses, but she did re-tweet them for all to read and she made sure to add the World Bank’s twitter account to the dispatches so that the behemoth institution could also see what Africa’s tweeting populace had to say.” READ MORE

“Last week, ahead of her trip to Washington, D.C., to speak to the World Bank about Africa’s private sector, the 35-year-old Policy Manager for Google Africa took to her Twitter account and asked her followers, “What should I tell them?”

The responses came in fast and varied from rants about corruption in multinational corporations to comments about infrastructure and energy. For the most part, Okolloh didn’t engage the responses, but she did re-tweet them for all to read and she made sure to add the World Bank’s twitter account to the dispatches so that the behemoth institution could also see what Africa’s tweeting populace had to say.” READ MORE